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Cheers - AE

Monday, 19 October 2009

More financial fuckwittery.

From Dick Puddlecote's comment on this blog about the government's proposed tax raid on banks I see that self certified mortgages may go the way of the elephant, royally fucking things up for the self employed. I'd mustered a few thoughts but Dick Puddlecote has already shredded the idea.

It's a day of rest for fuck's sake, can't proscriptive cockwafflers cease hostilities for just 24 blissful hours in a week?
The Financial Services Authority will make banks liable for loans if they do not check customers can afford them.

It is expected to ban self-certified mortgages, in which customers do not have to prove their income.
Because bans are the knee-jerk response in these modern, enlightened times. Fucking beam me up, Scotty, I'm ready for life on another pigging world.
Yep. As I've found myself simply changing countries isn't likely to be enough, though I doubt ASIC would do the same thing here with small businesses being so popular here in Oz.
Self-certified mortgages have a very real purpose. For those whose income is hard to prove by conventional means, or the self-employed for whom the general 'three years' accounts' rule is not possible, a self-cert is the only way into home-buying.

They are also (or were when I was in the difficult position of not having traded for three years), a very safe lending opportunity, it always seemed to me.

An average purchase price in my area is around £200,000 I reckon. The self-certs I have seen offered ask for a 20% minimum deposit. So, the lender instantly has a £40,000 head start on the deal. If you failed to make a single payment, the reposession costs and loss of value from a recuperative firesale auction are fairly well covered. There would be a short-term loss of liquidity for the bank but that is about it.

On top of that, the credit risk score required is higher, and the interest rate offered for such deals is normally at a premium which offers attractive profits for the lender - just what they would be looking for in these straitened times, one would assume.

As usual, though, regulators have balanced the evidence, weighed up all the pros and cons, and come to the conclusion that none of us are to be trusted to buy so much as a shoe box on the basis of our own cognisance.

It's the risk-averse culture transposed into the banking sector. Personal responsibility of both the borrower and lender is being eradicated in favour of heavy-handed state intervention. Willing to lend at little or no risk? No chance, the choice is no longer yours.
Couldn't put it better. As for the idiot idea of making banks liable for loans, seriously, what the fuck? In a sense they always were liable in the same way that if you lend a mate money and he does a moonlight flit you've lost out, and so there's always a responsibility to be prudent about the loan of money whether you're an individual or a bank. The big problem, as so many said before, is there's no incentive to be prudent when there's an expectation that someone will step in and bail you out if you fuck things up and lend money to bad risks. And there needs to be one because, as we've seen, there are big incentives to hose money at people who can only repay the debt in boom conditions, and far from being an opposing incentive balancing the reckless lending impulse implied government safety nets are precisely the opposite.

As DP says, personal responsibility is being made a thing of the past and regulation, regulation and yet more regulation is taking over. That'll work fine until the next fuck up when we'll be told the same old shit - regulations didn't anticipate, the lending rules permitted, blahdefuckingblah. Past regulation and government interference has created the unforeseen consequence of unnatural incentives to loan unwisely, and I don't have much faith that things will be any better if the government's regulator starts meddling in mortgages. Aside from anything else the business of a loan between a bank and a borrower should be largely between them and them alone unless actual fraud is involved, though of course thats one area of financial dealings that the government might not want too much light shone on.
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